Tax Planning Opportunities During Market Volatility
Part of the Riverstone Tax Planning Series
If you've been watching the markets lately, you know it hasn't been a comfortable few weeks.
The Dow recently closed at its lowest level of 2026. Geopolitical tensions in the Middle East are pushing energy prices higher and rattling investor confidence. The Fed held rates steady at its March meeting and signaled only one potential cut for the year. The VIX, Wall Street's fear gauge, has been hovering in the mid-20s, a range that historically makes markets more susceptible to further swings. The mood among investors right now is cautious, and for good reason.
In nearly 19 years working in finance, I've been through enough of these periods to know two things with certainty. First, they always feel worse in the moment than they look in hindsight. Second, and more importantly for this article, they almost always create planning opportunities that don't exist when markets are calm.
I know that sounds counterintuitive. When your account balance is down, the last thing you want to hear is that this is a good time to do anything. But the tax planning moves that tend to generate the most long-term value are almost always the ones made during periods of discomfort, not during stretches of smooth sailing. The clients I've worked with who navigated volatility best weren't the ones who reacted the fastest. They were the ones who used the disruption as a prompt to do things they should have been doing anyway.
Here's what I mean.
A down market changes the math on Roth conversions
I covered Roth conversions in detail in the prior article in this series, so I won't rehash the full framework here. But the core logic is worth revisiting in the context of what's happening right now.
When you convert traditional IRA assets to a Roth account, you pay taxes on the value of the assets at the time of conversion. If your IRA was worth $500,000 six months ago and is worth $420,000 today, you're paying taxes on $420,000. The difference is real money. And if the account recovers, that recovery happens inside the Roth, which means it compounds tax-free going forward.
This is one of the clearest examples I know of a genuine planning opportunity embedded inside market volatility. The conversion doesn't feel good when you're writing the check to the IRS. It tends to look very smart two or three years later.
The caveat, and it matters, is that conversions still need to fit within your overall tax picture. Converting a large amount in a year when other income is elevated, or when the conversion would push you above an IRMAA threshold, can offset the benefit. This is why I always run the full analysis before recommending a specific amount. But for clients who have been considering a Roth conversion and haven't pulled the trigger, a period of depressed account values is worth a serious look.
Tax loss harvesting: turning paper losses into real benefits
Tax loss harvesting is one of those strategies that sounds more complicated than it is.
When investments in a taxable brokerage account decline in value, you have the option to sell them and realize the loss. That realized loss can offset capital gains elsewhere in your portfolio, and if losses exceed gains, up to $3,000 of the excess can be used to offset ordinary income. Unused losses carry forward to future years indefinitely.
In a volatile market environment, taxable accounts often contain positions that are sitting at a loss, sometimes significantly so. Those losses are only useful if you act on them. A position that recovers fully before you sell generates no tax benefit. The loss has to be realized.
The important nuance here is the wash sale rule. If you sell a position at a loss and repurchase the same or a substantially identical security within 30 days before or after the sale, the IRS disallows the loss. The practical solution is to sell the position and replace it with a similar but not identical investment, maintaining your market exposure while locking in the tax benefit. For example, selling one S&P 500 index fund and replacing it with a different one that tracks a similar but distinct index.
Done carefully, tax loss harvesting in a down market can generate meaningful tax savings without meaningfully changing your investment positioning.
Revisiting asset location when valuations shift
Asset location is the practice of placing different types of investments in the most tax-efficient account types. Growth-oriented assets that are expected to appreciate significantly tend to be more valuable inside Roth or tax-deferred accounts, where that growth won't be taxed annually or at all. Income-generating assets that produce taxable interest or dividends may be better suited to tax-deferred accounts.
When markets shift and relative valuations change, it's worth revisiting whether your current asset location still makes sense. Assets that have declined significantly in taxable accounts may be candidates for a Roth conversion or a transfer to a tax-advantaged account at a lower tax cost. This isn't a move everyone should make, but it's a conversation worth having when prices have moved substantially.
What a down market does not change
In nearly two decades in this industry, I've watched investors make the same mistakes during volatile periods over and over again. I want to be direct about a few things that market volatility does not change.
It does not change your long-term financial plan. If your retirement is ten or fifteen years away, the account balance you see today is not the account balance that will fund your retirement. What matters is the plan, not the current number.
It does not mean you should stop contributing. Investors who stopped contributing to retirement accounts during the 2008 financial crisis or the 2020 COVID downturn missed some of the most powerful recovery periods in market history. Consistent contributions during downturns buy more shares at lower prices.
It does not mean you should make dramatic portfolio changes based on headlines. The geopolitical situation in the Middle East, the Fed's rate decisions, inflation data, none of these should trigger a wholesale restructuring of a well-constructed long-term portfolio. Adjustments should be deliberate and plan-driven, not reactive.
What volatility does create is a window for specific, targeted planning moves. The strategies I've outlined above are most effective precisely because most investors aren't thinking about them when markets are unsettled. The clients who tend to come out of volatile periods in the strongest position are the ones who used the disruption to act thoughtfully rather than emotionally.
The broader tax planning picture
I want to place this article in the context of where we are in the Riverstone Tax Planning Series.
We've covered the hidden tax risks of large IRA balances, when Roth conversions make sense and when they don't, and the Widow's Tax Penalty. Each of those articles has dealt with long-term structural tax planning, the kind of decisions that play out over years or decades.
Market volatility adds a time-sensitive dimension to that work. The window to harvest losses, convert at depressed values, or reposition assets at lower valuations is not always open. It tends to be available precisely when it feels most uncomfortable to act, which is why having a relationship with an advisor who is thinking about these things proactively matters considerably.
Working with a financial advisor in Morris County during volatile markets
For clients and families throughout Chester, Morris County, Mendham, Bernardsville, Far Hills, and the broader northern New Jersey area, periods like this one are a good time to pick up the phone and have a conversation about what, if anything, makes sense to do.
In my practice at Riverstone Wealth Planners, I work with a significant number of independent women, retirees, and pre-retirees who have spent decades building their financial security. Protecting that security during volatile periods, while also identifying the planning opportunities embedded in the disruption, is exactly the kind of work that makes a real difference over time.
If you'd like to talk through your current situation and whether any of the strategies in this article are worth exploring, I'd welcome the conversation. There's no obligation and no pressure. Sometimes the most valuable thing we can do during a difficult market period is simply review the plan together and confirm that it still makes sense.
Frequently Asked Questions
Is a volatile market a good time to do a Roth conversion? It can be, because you're converting assets at lower values and paying taxes on a smaller amount. If the account recovers, that recovery happens tax-free inside the Roth. Whether a conversion makes sense in your specific situation depends on your current tax bracket, income, and overall financial picture. The opportunity is real, but the analysis still needs to be done carefully.
What is tax loss harvesting and how does it work? Tax loss harvesting involves selling investments that have declined in value to realize a loss that can offset capital gains or, up to $3,000 per year, ordinary income. Unused losses carry forward indefinitely. The key constraint is the wash sale rule, which prevents you from repurchasing the same security within 30 days of the sale.
Should I stop contributing to my retirement accounts during market volatility? Generally no. Contributing consistently during downturns means buying more shares at lower prices, which can meaningfully improve long-term outcomes. Unless there's a specific financial reason to pause contributions, market volatility alone is rarely a good reason to stop.
How often should I review my financial plan during volatile markets? There's no single right answer, but checking in with your advisor at least once during a significant market disruption is worth doing. The goal isn't to make dramatic changes. It's to confirm the plan still makes sense and to identify any time-sensitive planning opportunities the volatility may have created.
Where can I find a financial advisor in Morris County NJ to help navigate market volatility? Riverstone Wealth Planners, based in Chester, New Jersey, works with individuals, retirees, and independent women throughout Morris County and northern New Jersey on retirement planning, tax strategy, and investment management. You can schedule a complimentary conversation at the link above.
This material is for informational purposes only and should not be considered individualized financial, tax, or legal advice. Individuals should consult with a qualified financial professional, tax advisor, or attorney regarding their specific situation. Securities and advisory services may be offered through LPL Financial, a registered investment advisor and member FINRA/SIPC. Investing involves risk including loss of principal. Past performance is no guarantee of future results. Tax laws are subject to change, and the impact of any strategy will vary based on individual circumstances.
